IPO Report: Fidelity & Guaranty Life (FGL)

Francis Gaskins  |

For over 50 years, Fidelity & Guaranty Life (FGL) has been helping middle-income Americans prepare for retirement and unexpected loss of life, through fixed indexed annuties (FIAs) and indexed universal life policies (IULs),

Eight other IPO’s are scheduled for this week. The full IPO calendar can be found at IPOpremium.

FGL scheduled a $176 million IPO with a market capitalization of $1 billion at a price range midpoint of $18 for Friday, December 13, 2013, on the NYSE

The Manager & Joint managers are Credit Suisse, J.P. Morgan, Jefferies, Macquarie Capital, RBC Capital Markets. The Co-Managers: Nomura Securities, Sandler O'Neill, Sterne Agee, Cantor Fitzgerald, Dowling & Partners.  SEC Documents

There is only one comparable public company American Equity Investment Life Holding (AEL). 

FGL is priced at a P/E discount to AEL, but AEL’s dividend yield is 7.2% versus 1.44%


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The rating on FGL is neutral on the IPO, with a possible longer term hold in the aftermarket, based on the comparison with AEL.

To put the conclusions and observations in context, the following is reorganized, edited and summarized from the full S-1 referenced above:


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For over 50 years, FGL has been helping middle-income Americans prepare for retirement and unexpected loss of life, through fixed indexed annuties (FIAs) and indexed universal life policies (IULs),

FGL’s focus on the middle-income market gives it access to significant, underserved market niches and drives its product development.

As of September 30, 2013, FGL had 700,000 policyholders counting on the safety and protection features of its fixed annuity and life insurance products, and FGL  constantly seeks to innovate its products to meet their evolving needs.

Through the efforts of FGL’s 175 employees, who are primarily located in Baltimore, MD, FGL offers various types of fixed annuities and life insurance products. Fixed annuities represent a retirement and savings tool which FGL’s customers rely on for principal protection and predictable income streams.

In addition, FGL’s life insurance products provide its customers with a complementary product that allows them to build on their savings and assign payment of a death benefit to a designated beneficiary upon the policyholder’s death.

Fixed indexed annuities (FIAs)
Currently, FGL’s most popular products are fixed indexed annuities (“FIAs”), which provide FGL’s customers with interest tied to the performance of the stock market, while limiting the risk of losing money should the stock market decline.

FGL believes this mix of “some upside but limited downside” fills the need for middle-income Americans who must save for retirement but who want to limit the risk of decline in their savings.

Indexed universal life policies
In addition to FIAs, FGL also sells indexed universal life policies (“IULs”) and other fixed annuities.

History & organization

FGL organization chart

FGL is a holding company with no operations of its own.  The only significant asset and source of cash is the indirect wholly owned subsidiary, FGLIC, an Iowa life insurance company.

FGL also indirectly owns Fidelity & Guaranty Life Business Services, Inc. (“FGL Services”), which employs FGL’s employees and provides administrative services such as processing payroll and vendor payments on an at-cost basis to insurance subsidiaries.

On September 28, 2001, FGLIC was acquired by Old Mutual plc through Old Mutual US Life Holdings (“OMUSLH”). In 2010, Old Mutual plc publicly announced plans to sell OMUSLH as part of a corporate reorganization.

In April 2011, OMUSLH was acquired by HGI through Harbinger F&G, LLC, a holding company formed in connection with the acquisition of OMUSLH by HGI. OMUSLH changed its name to Fidelity & Guaranty Life Holdings, Inc. following the acquisition (the “FGLH Acquisition”).

On August 26, 2013, Harbinger F&G, LLC, a Delaware limited liability company, converted into a Delaware corporation pursuant to a statutory conversion and renamed itself Fidelity & Guaranty Life.

Prior to the statutory conversion, Harbinger F&G, LLC distributed its ownership interests in its wholly owned subsidiaries, HGI Real Estate, LLC and FS HoldCo Ltd. (together with its subsidiaries, “Front Street”), a reinsurer, to HGI, as well as all of Harbinger F&G, LLC’s rights, title, interest, liabilities and obligations under its litigation against OM Group (UK) Limited (“OMGUK”) related to a claimed $50 million purchase price adjustment in connection with the FGLH Acquisition.

Prior to the completion of this offering, and after the statutory conversion, all shares of FGL’s  common stock were beneficially owned by HGI.

Legal issues

FGL and HGI are currently involved with certain ongoing law enforcement and regulatory investigations and may be the target of future litigation, law enforcement investigations or increased regulatory scrutiny.

The financial services industry, including the insurance sector, is sometimes the target of law enforcement and regulatory investigations or other actions resulting from such investigations.

For example, FGLIC is currently under review by the New York State Department of Financial Services (“NYDFS”) related to the possible unauthorized sale of insurance by FGLIC within the State of New York.

Resulting publicity about any such investigation or action may generate inquiries or investigations into or litigation against other financial services companies, even those who do not engage in the business lines or practices at issue in the original action

FYI, this doesn’t affect the IPO

The stock of FGL’s primary operating subsidiary is subject to the security interest of its former owner.

Fidelity & Guaranty Life and FGLH granted the security interests in the shares of capital of FGLH and FGLIC to OMGUK in order to secure our indemnity obligations under the stock purchase agreement relating to the FGLH Acquisition.

FGL is currently in litigation with OMGUK over its obligation to pay a $50 million purchase price adjustment under that agreement. In August 2013, FGL transferred all of its rights, title, interest, liabilities and obligations under the litigation, including the right to receive such purchase price adjustment, to HGI.


FGL initially expects to pay quarterly cash dividends to holders of its common stock of $0.065 per share, which would yield 1.44% annually at the price range mid-point of $18.


11th largest FIA provider

FGL faces competition in the FIA market from traditional insurance carriers such as Allianz Life Insurance Company of North America (“Allianz”), Aviva Life Insurance Company, American Equity Investment Life Insurance Company (“American Equity”) and Security Benefit Life Insurance Company (“Security Benefit”).

Principal competitive factors for FIAs are initial crediting rates, reputation for renewal crediting action, product features, brand recognition, customer service, cost, distribution capabilities and financial strength ratings of the provider. Competition may affect, among other matters, both business growth and the pricing of FGL’s products and services.

As of September 30, 2013, the leading three providers of FIAs were Allianz, Security Benefit and American Equity. Their respective market shares were 13.7%, 12.3% and 11.0%. The aggregate market share of the top ten providers of FIA’s for the same period was 71.5%.

FGL is the 11th largest provider of FIA in terms of premium, and its market share for the same period was 2.7%.

21st largest in the IUL market

In the IUL market, FGL competes with large, well-established life insurance companies in a mature market, where price and service are key drivers.

Primary competitors include the AEGON Companies (“AEGON”), AXA Equitable Life Insurance Company (“AXA”) and Pacific Life Insurance Company (“Pacific Life”). Principal competitive factors for IULs are based on service and distribution channel relationships, price, brand recognition, financial strength ratings of FGL’s insurance subsidiaries and financial stability.

As of September 30, 2013, the leading three providers of IULs were Pacific Life, AXA and AEGON. Their respective IUL market shares were 13.1%, 9.4% and 7.5%. The aggregate market share for the top ten providers of IUL for the same period was 65.3%. FGL is the 21st largest provider of IULs in terms of premium, and our market share for the same period was 1.3%.

Use of proceeds

FGL expects to net $158 million from its IPO. Proceeds are allocated as follows:

for working capital to support the growth of FGL’s business and other general corporate purposes, including the costs associated with being a public company; and

to pay a special dividend to HGI equal to the lesser of (i) $50 million and (ii) 25% of the net proceeds of this offering after deducting underwriting discounts and commissions and estimated offering expenses.

This FGL IPO report is based on a reading and analysis of FGL’s S-1 filing, which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not necessarily represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer.


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